A way to think of the Baumol effect in more local terms:

High-productivity organizations have increased revenue and reduced expenses, almost by definition. These profits can be "spent" in various ways like charging customers less, paying workers more, paying investors more, and blue-sky research. (I'm remembering the early days of Google here.) Or it could fund various forms of corruption.

Paying employees more helps drive up local wages. Also, wealthier people want higher-end services and are price-insensitive, so they're inevitably going to be charged more. They'll bid more for houses and pay more to eat in fancier restaurants.

People discount the "trickle-down" effect but everyone notices when the cost of living goes up because there are a lot of rich people around who will pay more.